Market Information
Asia Pacific

The Wine Market in China

May, 2003

Prepared by the Canadian Embassy, Beijing

1. Overview

While the market for wine in China is still in its infancy, with total consumption of less than 1/3 litre per capita, domestic wine is gradually improving in quality and there are good opportunities for imported wines in the longer term as income levels continue to expand.

Although the wine market in China is emerging from almost zero consumption a decade ago, there is already a small but loyal following in major urban areas. The urban consumer class, which is estimated to exceed the total population of the United States, should develop as wealth increases into a substantial market for both imported and domestic wine.

Beijing and Shanghai are generally considered to have the largest markets for western foods and most major hotels and restaurants feature wine quite prominently. Red wine is becoming fashionable at lounges, night clubs, discos and some upscale Chinese restaurants and banquets. Wine consumption, especially imported wine, is virtually nonexistent outside of major cities.

Most domestic wine production has been produced from domestic grapes blended with cheap imported bulk wine often resulting in low quality wines which dominate the bottom end of the market. However, as domestic grape production has increased and wine production techniques improved, the importation of bulk imports for blending has dramatically decreased. The top end of the market is dominated exclusively by imported labels.

Wine is also available in some retail outlets, but local consumers tend to use wine for toasts in social settings rather than at home over a meal. Most consumers are attracted to wine by the positive press accounts of its health benefits rather than for its taste. Undoubtedly, it will take time for a wine culture to develop in a country that is truly unexplored territory in terms of wine appreciation.

Price is a major consideration to most Chinese, and imported wine is out of reach to most consumers. A domestic bottle of wine may retail for as little as US$3 while imported wine is generally $10-$20 a bottle or more.

China will reduce tariffs on wine from 65% to 14% under the WTO agreement which should allow better access to imported wines and foreign suppliers will be in a better position to target the emerging Chinese middle class. Canadian ice wines offer good prospects in the longer term on the basis of the uniqueness of the product as the wealth of China increases.

2. History of Grape Wine in China

Grape cultivation and wine making in China are not new, having being established before the Han Dynasty (206BC - 220AD). Indeed in 138BC, Emperor Han-wu sent an envoy to the western part of China (Xingjiang region) who reported back that "the Wan people made wine with grapes, drank wine on a regular basis, indeed wine was their most popular alcoholic drink. The rich people stored more than ten thousand `dan' (about 300,000 litres) of wine which could be kept for about ten years."

The envoy learned the techniques of planting grapes and winemaking which he brought back to the Emperor and soon the growing of grapes and wine-making for the Imperial Palace at X'ian in Shaanxi province was developed on a large scale.

During the Eastern Han Dynasty (25-220 AD), wine was quite precious as evidenced by the story of a bribery recorded in Han history. A man named Meng Tuo from Fufeng gave one 'duo' of wine (about 2 litres) to Zhang Rang in return for the position of prefectural governor of LIang Zhou.

While the basic grape wine making process is simpler than that of rice wine, the seasonal limitations of the grapes compared to year-round availability of grains limited the spread of wine production. As such, the Han Dynasty was unable to develop the wine industry in a significant way and, after the Han Dynasty (220 AD), wine production disappeared in the heartland of China.

Some 400 years later at the beginning of the Tang Dynasty (618-907AD), grape wine again became popular in China's capital. According to records, Emperor Tang Tai Zong learned wine-making techniques from the western region and the Emperor himself made wine in the Imperial Palace and awarded a variety of wine to aristocrats. Gradually, the people in Chang'an City began to enjoy wine and many famous poets wrote poems in praise of wine.

The next period of interest in wine was during the Yuan Dynasty (1271-1368). The rulers, the Mongols, of the Yuan Dynasty were very fond of wine, and stipulated that people must use wine when they offered a sacrifice at a temple. The scale of wine production in China reached its highest point during the Yuan dynasty. The traditional wine centre of the western region of Xinjiang was supplemented by production in Taiyuan, Shanxi province and Nanjing in Jiangsu province.

After the Yuan dynasty wine once again disappeared until, in the later Qing Dynasty (1644-1912), some wine was being imported into China from Europe. In 1892 an overseas Chinese, Zhang Bishi, established a vineyard and winery called the Zhang Yu Wine Company in Yantai, Shandong province. This was the first large scale modern winery owned by Chinese. After the foundation of the People's Republic of China, the grape and wine industry introduced varieties of vines from Eastern Europe during the1950's and early 60's but large scale production didn't begin until the last 10-20 years.

3. Domestic Production

About twenty years ago during China's initial opening to the west, several joint venture wineries, mostly Sino-French or Hong Kong invested emerged and laid the ground work for the current industry. Development of the grape wine industry has been assisted by official government encouragement to divert consumption from grain-based high alcohol wines like baijiu. The press often prints articles extolling the health benefits of red wine in particular.

Wine production in China has developed and is projected to continue to develop at a healthy rate of 12-15% per year. There are about 190,000 hectares of land in China planted to grapes. The regions of Xinjiang, Tianjin, Shandong, Liaoning and Henan are suitable for wine grape production.

Chinese grape wine quality did not have a good reputation, but this is rapidly improving. Chinese wine companies in many cases have brought in European expertise and are developing a sizeable domestic wine industry capable of turning out some very passable wines. A well known UK wine critic visiting China was quite impressed with the Chardonnay from Huadong winery in Qingdao and also expressed great interest in wines from Xinjiang province.

The market is dominated by domestic brands such as Dynasty, Great Wall, Dragon Seal and Imperial Court. The major local companies are described below:

• GREAT WALL: Possibly China's best known brand, located in Zhangjiakou, in Hebei province, owning a 750,000 m² vineyard at Shacheng. Total production is about 50,000 tons per annum, spread amongst seven different types. Of this about 1,500 tons are exported annually - just under 50% of China's total wine exports. Established in 1983.
• DRAGON SEAL: Founded in 1987 with the French corporation Pernod Ricard. Has 12 million m² vineyards in South Beijing and Shacheng in Hebei. Annual capacity is 40,000 tonnes. Real production of 2001 is more than 10,000 ton.
• CHANGYU: Changyu is the largest wine manufacturer of Asia, with employees of 4,000, total assets of 2.29 billion RMB, annual capacity of 80,000 ton. Products are exported to Malaysia, America, Holland, Belgium, Korea, Thailand, Singapore, Hong Kong and elsewhere. www.changyu.com.cn/english/about/index.asp.
• HUADONG: Established in 1985, has a total of 5 vineyards of 10 million m² in Shandong, close to Qingdao. Annual production capacity is 60,000 ton, specializing in white wine varieties, with a very good Chardonnay. at: www.huadongwinery.com/egsjj.htm
• LOU LAN: Producing some of China's most palatable table wines, based in Turpan, Xinjiang Province, producing 5,000 tons per annum from their own vineyard. Extensive use and partnerships with French experts produces a wide range of wines but their cabernet (red) and Sauvignon (white) wines, which are now declared as vintages, are especially good. Established in 1976.

4. Imports of Wine

Chinese imports of wine have decreased by about 50% during the past 5 years according to Chinese trade statistics. The primary reason for this has been the dramatic reduction in low cost bulk product for blending with local production. In this regard, imports from Spain, the largest exporter a few ago, have decreased substantially. With imports of US$ 23 million, China is not a large market for imported wine but does offer some interesting longer term opportunities.

Source: China Customs

The total figures may not accurately reflect the real level of imports due to continued smuggling in south China. Additionally the total imports by country will be impacted by re-exports from Hong Kong.

5. Retail Prices

The following retail wine prices in Beijing stores are representative of the current market prices for wine (May 2003). The approximate exchange rate for the Renminbi (RMB) which is the official Chinese unit of currency, is 5.9 RMB = 1 Canadian Dollar, or 8.3 RMB = 1 USD.

6. Tariffs

As part of China's WTO agreement, the tariff on wine in bottles under 2 litres will be reduced from 65% to 14% and the tariff on wine in bulk will be reduced to 20%.

* final bound rates which become effective January 1, 2004

In addition to the above tariff rates, wine is subject to a value added tax (VAT) of 17% and a consumption tax of 10%.

7. Labelling requirements:

China's State Administration for Entry-Exit Inspection and Quarantine (AQSIQ) recommends that foreign suppliers consult with Chinese importers about specific labelling requirements to ensure requirements are being met.

The new Chinese food labelling law was designed and promulgated by the State Bureau of Technical Supervision to apply to pre-packaged food and beverage products to be marketed in China including alcoholic beverages, and closely follows standards recommended by the FAO and World Health Organization's CAC (CODEX STAN 1-1991). The law only applies to labels on "delivery units" that are pre-packaged for retail sales, but does not affect "shipping units" and bulk goods. The new law was put into effect on September 1, 1996, which also marked the start of banning the use of temporary adhesive labels (Chinese language stickers). Nevertheless, most foreign wines in China currently still use their original label in the front with a Chinese language sticker attached to the back of the bottle.

The labels for wines, champagne, and sparkling wines should include the following mandatory label contents in Mandarin Chinese:

1.) Name/Brand of the Wine
2.) Ingredients
3.) Net Content (ml)
4.) Alcoholic Content (%) (V/V)
5.) Production Date (yy/mm/dd)
6.) Packer / Distributor (Name & Address)
7.) Content of Must (%) ( Sake is exempted from this requirement)
8.) Country of Origin
9.) Quality Guarantee and/or Storage Period (yy/mm/dd)
10.) Content of Sugar (gram/l)

8. Market Opportunities and Constraints

While the markets in Beijing, Guangzhou and Shanghai are somewhat saturated, they are still the easiest cities for the first time exporter to approach with confidence. A number of reputable importers and distributors are established in these cities and wine is well known in the numerous night clubs, restaurants, bars and lounges which often feature very exclusive wine lists.

Smaller cities which are within a few hours drive of Beijing and Shanghai also offer long term prospects, but trade and consumer education will in many cases require starting from scratch. Cities such as Hangzhou, Suzhou, Nanjing, Tianjin, and Dalian, all of which are situated in the more developed eastern region of China, have adequate access to distribution links, relatively decent commercial infrastructure, and a rising consumer class. Once your product has proven itself in a city like Shanghai or Beijing, then the experience learned in importing and distributing in China can be applied to more challenging cities.

Canadian products such as ice wine are unique and relatively new in this market . Canadian wines are currently distributed by the two biggest importer/distributors, Montrose Food & Wine and ASC Fine Wines.

9. Trade Shows and Promotional Events

Major food and beverage trade shows offer a good opportunity to introduce new products to the Chinese market to find leads for potential importers/distributors. Major trade shows of this nature are held regularly in Beijing, Shanghai and Guangzhou.

10. Distribution Channels

Traditionally wine entered the Chinese market via two channels:

• China National Cereals, Oils & Foodstuffs Import and Export Corporation (CEROILS), the state monopoly wholesaler and distributor of alcoholic beverages.
• Joint venture and foreign-owned hotels, as well as duty free stores under China Travel Services (CTS). Generally a limited channel as products were restricted from general distribution.

In addition to the above two import channels, there is the so-called 'grey channel' through Hong Kong and Guangzhou where product is imported in a manner to avoid the high duties and taxes. The significant decline in duty rates together with stronger enforcement by government of Customs regulations is resulting in a decline in volume of smuggled product.

Domestic distribution channels for imported wine are still in their infancy. For the most part the importer or brand owner must be directly involved in the actual selling by placing a team to work along side the domestic distributor. For a complicated product like wine, it is difficult to convince the distributor to invest its own resources in improving the quality of its sales staff's knowledge and capabilities to sell your product. Chinese distributors serve mainly as warehouse and invoicing agents who reluctantly devote their own resources to develop their territory customer base for the imported products.

As a result, some of the leading wine importer/distributors now engage in all aspects of sales and marketing in the domestic market, including climate-controlled warehousing, trade education, market promotion, sales, and delivery.

Alcohol distribution companies throughout China range from more tightly controlled government companies like Ceroil in Beijing, to 100% independent private companies who have strong government/police connections but are free from government control/bureaucracy. The dilemma is therefore to find well connected local distributors who are also genuinely interested in expanding their wine product portfolio - and who are willing to invest time and money to learn about these new products.

When seeking new distributors it is recommended to insist on pre-payment or COD terms. As one major importer notes "our experience indicates that it is indeed better to find an independent private company rather than a government controlled distributor, however, the problem is that most of the successful independent companies are in high demand and usually reluctant to add new products whose success is not a sure thing."

11. Contacts for Wine Importers

For Canadian companies seeking names of potential Chinese wine importers and distributors, please contact the Canadian Embassy in Beijing or the Canadian Consulates in Shanghai, Guangzhou and Chongqing.